Get Involved in the European Financial Mess, Pay the Price

Monday, MF Global, filed for CH 11 bankruptcy protection, having the distinct privilege of becoming the 7th largest bankruptcy in US history. MF Global, a major financial exchange-traded derivatives broker, is managed by Jon Corzine, with a claim to fame of having run former Goldman Sachs.

Following Goldman’s demise, Jon Corzine in 2009 became involved with age-old MF Global with intent to transform the company into an investment bank analog Goldman Sachs. Speculating on a recovery in Euro-papers and European sovereign debt, MF Global reportedly had a $6.3 billion Eurozone exposure. The Greek crisis and a continuing European debt crisis, prolonged the company’s strategy, and near constant devaluation in European sovereign debt had MF Global reportedly losing billions.

Thus, MF Global has the dubious honor in becoming the first U.S. casualty of the European debt crisis.

Among unsecured creditors is JPMorgan Chase Bank NA, trustee for holders of $1.2 billion in debt, and Deutsche Bank Trust Co. trustee for holders of $690 million in debt. Although this bankruptcy is unlike the Lehman Brother crisis, MF Global clients eventually made a run on the company’s bank accounts withdrawing as much as they could Monday afternoon. A continuation of pulling money from MF Global and loss of trust in the financial firm is likely to lead to liquidity problems later this week.

Just last week, MF Global, went to fully draw upon a bank credit line of $1.3 billion dollars. How much is left, nobody knows at this time.